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The Dynamics of Institutional and Individual Trading

Authors

  • John M. Griffin,

  • Jeffrey H. Harris,

  • Selim Topaloglu

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    • Griffin is visiting at Yale University and on faculty at the University of Texas at Austin, Harris is at the University of Delaware and a former Visiting Academic Fellow at Nasdaq, and Topaloglu is at Queen's University. Portions of this research were completed while the first and third author were at Arizona State University. We thank Kirsten Anderson, James Booth, Greg Brown, Murillo Campello, Jeff Coles, Jennifer Conrad, Claude Courbois, Josh Coval, Rick Green (the editor), Harrison Hong, Bin Ke, Spencer Martin, Tim McCormick, Federico Nardari, Adam Nunes, David Shrider, Jeff Smith, René Stulz, Russ Wermers, Ingrid Werner, James Weston, Guojun Wu, two anonymous referees, and seminar participants at Arizona State University, Baylor University, 2002 FMA Annual Meeting, The Ohio State University, Rice University, Texas A&M University, the University of Michigan, and the University of North Carolina for their helpful comments and discussions. We also thank Patrick Kelly and Felix Meschke for editorial assistance. All remaining errors are our own.

Abstract

We study the daily and intradaily cross-sectional relation between stock returns and the trading of institutional and individual investors in Nasdaq 100 securities. Based on the previous day's stock return, the top performing decile of securities is 23.9% more likely to be bought in net by institutions (and sold by individuals) than those in the bottom performance decile. Strong contemporaneous daily patterns can largely be explained by net institutional (individual) trading positively (negatively) following past intradaily excess stock returns (or the news associated therein). In comparison, evidence of return predictability and price pressure are economically small.

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